$1m savings for retirement may not be enough

A retirement savings nest egg of $1 million probably sounds like a reasonable lump sum. But those likely to retire with $1 million, dreaming of strolling along beaches in exotic parts of the world, could be disappointed.

The Australian Securities and Investments Commission's Money Smart retirement planner shows a home-owning couple with $1 million at age 65 could expect an annual after-tax income of $61,000 a year until they reach age 90.

That includes the part age pension. From age 90, the couple would receive the full age pension of $32,000 a year.

The Association of Superannuation Funds of Australia's Retirement Standard estimates a home-owning couple needs almost $58,000 a year for a ''comfortable'' retirement.

At first blush it may seem the home-owning couple with $1 million will achieve their goals. That is, until you read the Retirement Standard's definition of a ''comfortable'' retirement as being able to afford a reasonable car, good clothes, a range of electronic equipment, and domestic and occasional international holidays.

For many, particularly those on higher incomes, the Retirement Standard's definition is not all that comfortable. Also, the Retirement Standard assumes both partners will not start their retirement until age 65. For anyone retiring before age 65 the income they need to fund a comfortable retirement will increase.

And the road to saving for retirement is full of potential potholes such as prolonged unemployment, illness and taking time out to raise children; all of which mean less compulsory super going towards the retirement savings pot.

Those who look after themselves by regularly exercising and eating well are those most likely to stay active for longer and to have more years in retirement to fund.

Then there is the most sobering number I have seen for a while: the Actuaries Institute report last year said advances in medicine could eventually see half of all 65-year-olds live beyond 100.

The bottom line is even $1 million may barely be enough for many people. Some will come into an inheritance and some may free up some of the capital they have in their homes by downsizing.

But closing the retirement savings gap - the difference between the expectations we have for retirement and what we will save - will not be achieved by compulsory super alone.

It underlines the importance of making salary sacrifice contributions as early as possible.

Working for longer or continuing to work part-time makes a big difference. Each year worked is an extra year of saving for retirement and one year less of retirement to fund.

There are no easy solutions and many unknowns. There are the vagaries of the investment markets and the question of how much of the nest egg should be in shares and how much in income-producing investments, for example.

But a good financial planner is able to show the range of likely outcomes. That may even mean being realistic about the sort of retirement that can be afforded.